Plug the holes

Imagine that you are set to begin a new era of your life by embarking a journey towards financial freedom. Imagine that you have set sail and ready than ever to begin on the voyage of your life. You lift the anchor and cruised towards the open sea heading the destination that you dream of. But suddenly, hard fact hits you back as you realized that your ship is not moving as fast as you wanted it to be. Even worse, the ship starts to sink as you embark from the port. Why does this happen? As you check your ship, you then realized that your ship is full of holes and water is fast flooding your ship. Your exciting journey comes to an abrupt end as more and more water floods the ship.

How can this story related to your journey to financial freedom? The hole in the ship can be analogous to debts that you have acquired in life. A life with a lot of debt will either slow you down or cripple you to the ground. So, if you have a dream of living a life of financial freedom, the first thing you must do is to eliminate your debt or analogous to plugging the holes in your ship. A ship with no holes will cruise faster and better than a ship with even one hole. You will arrive to your destination even faster.

Sunken Ship

How to know that you are already in heavy debt? These are some indicators stated on the book by Azizi Ali, Millionaires are from a different planet!

1) Missing payments
2) Paying less than the agreed amount
3) Paying the minimum due
4) Busting your credit limit on the credit card
5) Having to borrow more money to settle old debt commitments
6) Not able to handle minor financial emergencies
7) Avoiding calls of creditors
8) Wondering how on earth are you going to get out of this mess

So, if you are having some or all of the symptoms as stated above, you are in big trouble. Having debt is like cruising the sea in a sunken ship. The more holes the ship have, the more deeper the ship will sank. Therefore, the first immediate step you should do is to try to find the biggest hole in the ship and plug it quickly. In the financial world, it means try to identify which debt carries the highest interest and eliminate it quickly.

What to do with $1,000?

Once you start earning a living,you quickly learn that you always seem to need more money, no matter how much you make. You can easily spend $1,000 in a day, perhaps to update your wardrobe, book a holiday or buy the latest iPod.

However, the money can be wisely invested in your future. As a young adult, you know it is time to get serious about money, especially if you have been living from pay cheque to pay cheque. You may be keen to start investing but do you have a rainy day fund to see you through the unexpected? Here are a few things to consider

1. Start paying off your debts
2. Cultivate a saving habit
3. Invest in a growth fund
4. Build a cash cushion
5. Buy peace of mind
6. Get financially savvy
7. Enhance your earning power
8. Invest in a hobby

Article excerpted from Personal Money, November 2006 issue

How to Eliminate Debt - the Art of War

I have just finished reading an article on Alexander the Great. It mention that Alexander doesn't have a huge army when he started his conquest to rule the known world. But, strategically he has a very diversified and well skilled army.

When confronted with a huge army, one strategy that he used is by attacking the smallest unit but yet he found most threatening first. In one case, it is the archery unit. And then he will use his mighty army to defeat the heavier unit.

I like to make the same comparison with how we can eliminate debt by using the same strategy. We can use all the resources that we have to eliminate the smallest debt but with the highest interest first. After we eliminated that debt, we can then use the resources we have to start attacking other debt is not critical. Just a thought.